Tanner is choosing between two investment options. He can invest $500 now and get (guaranteed) $550...

 

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Tanner is choosing between two investment options. He can invest $500 now and get (guaranteed) $550 in one year, or invest $500 now and get (guaranteed) $531.40 back later today. The risk-free rate is 3.5%. Which investment should Tanner prefer? OA. $550 in one year, since it is $50 more than he invested rather than $31.40 more than he invested. OB. $531.40 later today, since $1 today is worth more than $1 in one year. OC. Neither both investments have a negative NPV. OD. Tanner should be indifferent between the two investments, since both are equivalent to the same amount of cash today. Tanner is choosing between two investment options. He can invest $500 now and get (guaranteed) $550 in one year, or invest $500 now and get (guaranteed) $531.40 back later today. The risk-free rate is 3.5%. Which investment should Tanner prefer? OA. $550 in one year, since it is $50 more than he invested rather than $31.40 more than he invested. OB. $531.40 later today, since $1 today is worth more than $1 in one year. OC. Neither both investments have a negative NPV. OD. Tanner should be indifferent between the two investments, since both are equivalent to the same amount of cash today.

Answer rating: 100% (QA)

To solve this problem we need to understand the concept of the time value of money which suggests th... View the full answer